Congress Struggles To Find Balance In Flood Insurance Reform

State Net Capitol Journal Spotlight: Troubled Waters

When Lynne Kampel bought her small home on Long Island in 1990, its location across the road from Randall Bay's inlet waters, only blocks from the famed Nautical Mile, was a real selling point. So was its price tag, a steal at just $105,000, which made ponying up the monthly mortgage an affordable proposition. There was also another factor making a home that close to the tempestuous Atlantic Ocean economically viable: flood insurance that was heavily subsidized by the federal government. But for Kampel and many homeowners like her, those days may be long gone.

After operating for decades in the black, the National Flood Insurance Program (NFIP) — created by Congress in 1968 to help residents in flood-prone areas afford insurance — is now at least $24 billion in debt to the National Treasury. In an effort to make the program solvent, Congress last year overwhelmingly passed the Biggert-Waters Insurance Reform Act of 2012, a measure requiring more property owners in those flood-prone areas to pay the true cost of insuring their dwellings.

But the law, which began taking effect in October, has led to astronomical flood insurance rate hikes for home and business owners across the nation, and uncertainty for many more. Kampel, for instance, says that when she first bought her two bedroom-one bath home, flood insurance cost her about $350 a year. That has gradually grown to around $800, but under the 2012 law, she has been told to expect it to climb many times over.

"I still don't have a final figure," she says. "But I've been told that if I'm not able to meet the new flood proofing standards it will be over $9,000 a year."

She is not alone. Stories abound of people from Florida to Oregon being hit with similar rate hikes, with many now caught between spending tens of thousands of dollars to mitigate their properties against future flooding — primarily by lifting them above their area's base flood elevation — or paying exorbitant premiums for their insurance coverage. Overall, the Government Accountability Office estimates that 438,000 current policyholders will see higher rates, including an additional 5 percent assessment to help the program build a financial reserve.

Not surprisingly, that is drawing significant criticism from affected property owners. It has also sparked a furious retreat by Congressional lawmakers — including Rep. Maxine Waters (D-California), co-author of the 2012 bill — who have introduced several bills (US HR 3370, SB 1601, SB 1610, HR 2199 and HR 2217) aimed at delaying those price hikes for at least four years. In September, over 50 House members signed a letter to Speaker John Boehner (R-Ohio) seeking to have language halting the rate increases added to any legislation currently being considered by Congress.

Some states are also getting into the act. Mississippi has already filed suit seeking to block the rate hikes. Louisiana is preparing to do the same, while legislation introduced in Massachusetts would cap the amount of insurance a home lender can require.

The NFIP wasn't always swimming in debt. Created in the wake of 1965's Hurricane Betsy, which caused more than $1 billion in damage to the Gulf Coast, the program was an acknowledgement of two realities: private sector flood insurance was both rarely available and, when it could be found, prohibitively expensive. Faced with millions of homeowners simply unable to get affordable coverage, the federal government decided to step in. With a partner now willing to foot most of the bill, over 5 million policyholders accounting for $1.3 trillion worth of property eventually came to count on some level of NFIP subsidy. Two-thirds of those are in California, Florida, Texas, New Jersey and Louisiana, all coastal states prone to weather events that often produce major flooding.

Even so, the NFIP worked pretty much as planned for decades, borrowing from the Treasury on occasion but never very much or for very long. But starting with Hurricanes Katrina and Rita in 2005, the program became overwhelmed. At the time President Obama signed the Biggert-Waters Act in July, 2012, NFIP owed the Treasury $17 billion. But just months later came Hurricane Sandy, which added the additional billions the program now owes.

All of which creates a tremendous quandary for lawmakers. Leaving the 2012 law intact will undoubtedly price many residents out of their homes, creating the kind of political difficulties no public official wants to face. But supporters of the law say delaying the changes will only exacerbate the NFIP's debt, likely increasing it in the event of another major storm. A delay would also do nothing to discourage more development in flood-risk areas.

That last point is a major concern of groups like the Union of Concerned Scientists, which issued a report in August decrying further building in flood zones, saying "this risky pattern of development is being reinforced by the taxpayer-subsidized National Flood Insurance Program, which sets artificially low insurance rates that do not reflect the true risks to coastal properties."

Professor Howard Kunreuther, co-director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania, says the majority of properties losing their subsidies are second homes — which are scheduled to see their premiums rise 25 percent a year — or those with repeated flood events. A delay, he says, would discourage current NFIP policyholders from doing the mitigation steps needed to get their homes out of the floodplain.

"We recognize the tremendous challenges associated with affordability, particularly for people who bought homes in the months preceding the 2012 law being signed and then learned they were facing these dramatic increases due to being remapped into a flood zone or losing a subsidy," Kunreuther says. "But insurance rates must represent the real risk associated with a property. A delay doesn't do anything to address any of these issues, and actually stalls everything."

"That's basically the time the NFIP needs to be reauthorized [by Congress], so if they delay they would basically have to gut all the reforms and start over," she says.

Kunreuther's group has proposed implementing a two-tiered system of income-based vouchers and low-interest loans that will both inform homeowners of the true risk associated with their property and help them to mitigate future flooding. The vouchers, which would only be available to people who agree to do the mitigation, could be used first to subsidize the cost of the insurance premium and then, once property improvements are made, to help pay off the loan.

The benefits, he says, would favor everyone: thousands of at-risk properties would be far better protected from flood damage and both the government and the property owner would save a lot of money in the process.

The Association of State Floodplain Managers has also proposed a suite of nine principles to make flood insurance more affordable, including moving premiums toward full-risk rates and using a voucher-loan system to help property owners pay for mitigation improvements. Starkly absent from their suggestions is one calling for delaying the rate hikes mandated by the 2012 Biggert-Waters law.

The most current Congressional delay measure, US HR 3370, is currently in committee and has over 90 co-sponsors. Lawmakers are expected to address it before the end of the year.

Meanwhile, back on Long Island, Lynne Kampel has come to a decision. An engineer she hired says that because her 1,100-square-foot home's lower walls are made of cinder blocks, it structurally can not be lifted.

"Apparently it would just fall apart if we tried it," she says, a touch of resignation in her voice. But she vows not to give up. She has been flooded twice in just the last few years, first by Hurricane Irene in 2011 and then again by Sandy in 2012. For that one, she says she had four feet of water in her living room. But she believes she will be eligible for loans and grants from the New York Rising Community Reconstruction Program, which along with the insurance payout will help her do what she says she now knows she has no choice but to accept: knocking it all down and rebuilding from the ground up, this time elevated high enough to be out of the floodplain.

"It breaks my heart to have to do it," she says. "But I've been here for 23 years. I can't imagine leaving."

— Compiled by RICH EHISEN

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